Decreasing Independence of the Fed ?

Last May 2004, we detailed the research of Kenneth H. Thomas (Wharton Finance Lecturer), titled "Fed Chief’s Calendar Includes More White House Face Time."

Thomas’ analysis was somewhat critical about the decreasing independence of the Fed, as its Chair was becoming ever more chummy with the White House.

No good deed goes unpunished:
Now, it appears the Fed seems to have misplaced their documents detailing Greenspan’s more recent White House visits, and seems to be failing to respond to FOIA requests, as required by law.

Barron’s has all the details:

AS A FOOTNOTE, we hark back to May 24 of last year, when we penned a blurb describing some neat research done by Kenneth Thomas, who has done time in academia as a professor and is currently a lecturer in finance at the Wharton School at the U. of Penn. Through dogged persistence and crafty sleuthing, he discovered that in the three years through 2003, Mr. Greenspan had visited the White House 67% more often than he had graced it during the ’96-’98 stretch of Mr. Clinton’s tenancy.

As we remarked at the time, it was always possible that the markedly fewer visits might have reflected the fact that Mr. Clinton was engaged in other pursuits in the Oval Office during that particular period. But Dr. Thomas felt that Mr. Greenspan’s habitual journeys to the White House was evidence of his being too tight with Mr. Bush, at the very least lending the appearance that the supposedly independent Fed was being excessively influenced by the president.

Dr. Thomas reported to us recently that Mr. Greenspan’s visits to the First Residence began to drop off noticeably from 26 in the first half of last year to 20 in the second half and 19 in the first half of this year. Pure coincidence, we’re sure, that the chumminess between Mr. G and Mr. B started to chill when the Fed began its serial hikes in interest rates.

Strangely, too, after Dr. Thomas went public with his findings in ’04, he ran into what he calls big problems trying to extract further such info from the Fed via Freedom of Information Act requests. Even though he had been getting detailed logs of White House visitors for five years without trouble, the Fed suddenly refused to reveal the names of the visitors. Seemingly, from a policy leaning toward transparency, Greenspan & Co. quietly switched to one favoring opacity.

"I can only hope," Dr. Thomas says, "that Ben Bernanke is a little more open to disclosure" and less prone to visit the White House. We hope so, too, but feel constrained to advise him not to get his expectations up. Disclosure is decidedly not the fashion in Washington these days.

The White House paranoia over EVERYTHING seems to have infected just about any government group in Washington, D.C. 

We can only wonder what Fed Chair Al "hey-we’re-transparent" Greenspan is hiding in these White House visitation logs . . . .


UPDATE November 12, 2005 6:48pm

Mark Thoma of Economist’s View notes that Joseph Stiglitz has also questioned Greenspan’s record of Fed Independence:

"The traditional argument for an independent central bank is that
politicians can’t be trusted to conduct monetary and macroeconomic policy.
Neither, evidently, can central bank governors, at least when they opine in
areas outside their immediate responsibility. Greenspan was as enthusiastic
for a policy that led to soaring deficits as any politician … engendering
support from some who otherwise would have questioned its economic wisdom.
This, then, is Greenspan’s second legacy: growing doubt about central bank
independence. Macroeconomic policy can never be devoid of politics: it
involves fundamental trade-offs … Unemployment harms workers, while the
lower interest rates needed to generate more jobs may lead to higher
inflation, which especially harms those with nominal assets whose value is
eroded. Such fundamental issues cannot be relegated to technocrats,
particularly when those technocrats place the interests of one segment of
society above others. Indeed, Greenspan’s political stances were so thinly
disguised as professional wisdom that his tenure exposed the dubiousness of
the very notion of an independent central bank and a non-partisan central
banker. Unfortunately, many countries have committed themselves to precisely
this illusion, and it may be a long time before they take heed of Greenspan’s
most important lesson. Stressing the new Fed chief’s “professionalism” may
only delay the moment when this lesson is learned again."

-Joseph Stiglitz,
Is central bank independence all it’s cracked up to be?


A Medal for Messups
Barron’s MONDAY, NOVEMBER 14, 2005

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What's been said:

Discussions found on the web:
  1. blue commented on Nov 12

    maybe greenspan went to bill clinton’s white house less because he didn’t have to keep explaining the same things over and over.


  2. nate commented on Nov 12

    Clinton might have delegated more to his cabinet and economic advisors, including meetings with Greenspan.

    It might help to look at total visits to the executive branch, not just total visits to the president.

  3. nate commented on Nov 13

    Globalization and Its Discontents (or something close to this) is an interesting book by Stiglitz. I heard Stiglitz speak in Chicago not too long ago. Stiglitz is in NY these days? (Columbia)

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